Third Party Logistics (3PL): Simplified Definition

Third party logistics (3pl) refers to an organizations’s use of third party services or firms to outsource parts of its logistics related operations. Third party logistics service providers generally specialize in certain aspects of logistics like transportation or warehousing. Their specialization and scale offer them certain advantages with regard to service quality and costs. The services offered may extend beyond logistics in other areas like production and customer service. Third party logistics service providers typically handle only one part of the operations while the other parts are left to be managed by other firms or by the company itself.

Third Party Logistics (3PL): Technical Definition

ClickPost defines third party logistics as the use of third party businesses to outsource elements of shipping, distribution, and fulfillment services in logistics and supply chain management, where the third party providers generally specialized in integrated operations of transport and storage and can scale and optimize services based on the customer’s needs and requirements, and where the services may extend beyond logistics to include value-added services like production and procurement, and also services that integrate parts of the supply chain.

What are the types of third party logistics?

Third party logistics providers can be divided into 4 categories: 

1. Standard 3pl Provider

   These are 3PL firms that offer basic services related to logistics such as warehousing, shipping, and delivery. They are often logistics companies and not dedicated 3PL providers.

2. Service Developer

   These are 3PL providers that focus on providing value added services like tracking, specialized packaging, or security systems. A focus on technologies and economies of scale allows these firms to provide cost effective and competitive service in these fields.

3. Customer Adapter

   These 3PL firms takes over complete control of a company’s logistics when requested. They do not develop any new service and focuses on improving and optimizing the current operations drastically.

4. Customer Developer

   These firms form the highest level of 3PL service providers. They take over the entire logistical operations of a company and optimizes and rebuilds workflows as necessary.

What is third party transportation?

Third party transportation refers to the outsourcing of the transportation to a third party provider. The third party providers generally specilaize in their fields, allowing them to offer better rates and services. They may take over a specif part of the transportation, or may handle the entire transportation and shipping process including delivery. The details of the exact operations depend on their contract with the client.

What are 3PL and 4PL in logistics?

A 3PL in logistics is a firm that generally manages a specific part of the supply chain or operations rather than the entire operation like a 4PL. They also generally own shipping and warehousing assets. The primary focus of a 3PL is on the day-to-day operations of a specific niche that has been contracted out to them.

A 4PL in logistics is a firm that provides operational support and does not have any ownership of the necessary shipping and warehousing services. They focus on the entire end-to-end operations rather than a specific niche. Additionally, the 4PL primarily focuses on the long-term growth of the client and on optimizing the entire supply chain and operations.

Who uses 3PL?

3PL are used by companies in a wide range of industries to fulfill their logistics related needs. Some examples of industries where 3pl are used are manufacturing, ecommerce, pharmaceutical, medical, restaurants, seasonal retail, and construction.

How much does third party logistics cost?

The exact cost of a third party logistics provide depends on your requirements, the contract between the client and the third-party service provider, and to an extent on the third party service provider selected. It also depends on the industry you operate in, and the specific type of transportation required.

Why do companies use 3PL?

Companies use 3PL as it enables them to avail specialized services to optimize parts of their supply chain without needed to handle the entire operations. Opting for a 3PL also enables them to leverage economies of scale leading to lower costs. Additionally, 3PL can also provide faster and better service as they only focus on a part of the supply chain, which often works out to be faster and cheaper than in-house solutions.